ASX's prohibition on issuing non-voting ordinary
shares is out of touch with what is permissible on foreign
exchanges and has the potential to place ASX-listed companies at a
distinct competitive disadvantage. Allowing non-voting ordinary
shares would provide investors with greater choice and issuers with
greater capital raising flexibility.
The premise that voting power should be proportionate to the
economic interest held in a company is outdated.
The ability to issue non-voting ordinary shares provides
investors with greater choice in pursuing their individual
investment goals, and issuers with significantly more flexibility
in raising capital.
The proliferation of derivative products demonstrates there is a
market for acquiring exposure to a company's economic
performance without necessarily obtaining the associated voting
rights. Allowing for the issue of non-voting ordinary shares
creates such an investment option without the need for a derivative
to be written.
Shares with superior voting rights generally trade at a material
premium to those shares with limited voting rights. But not every
shareholder wants to pay that premium to exercise the right to
vote. In fact, there has been a steady decline in retail
shareholder participation at company meetings.
Many investors will simply sell out of a company if they are
unhappy with its direction rather than use their voting rights to
press for change. The option of acquiring non-voting ordinary
shares would be attractive for shareholders with this investment
Allowing companies to issue non-voting ordinary shares could
also help stem the flow of start-ups (particularly in the tech
industry) pursuing offshore listings, such as that proposed by
local technology poster-child Atlassian.
Australia's equity market would be more attractive if
entrepreneurs and start-up companies could raise equity capital
without necessarily having to cede control of decision-making. They
can stay in the driver's seat and pursue their long-term
strategy without risking the potential for value destruction from
shareholder myopia. Indeed, such concerns are likely to be
compounded by the increased levels of shareholder activism in
Corrs M&A Alert).
Google's proposal to issue a non-voting share class is a
recent example of founding entrepreneurs seeking to retain control
by either holding 'super-voting' shares or by issuing
non-voting shares to outsiders (ASX does not permit the issue of
'super voting' shares either).
The same strategy has been popular with other technology
start-ups like Facebook, LinkedIn and Groupon. With the resurgence
of founder-driven technology IPOs (including Freelancer, iSelect
and OzForex), ASX should be maximising its chances of capturing
Governments also stand to benefit from the added flexibility of
a non-voting ordinary share class, which would provide more
flexibility for structuring privatisations of public assets and for
foreign investment in areas where there are perceived national
For example, allowing non-voting ordinary shares would provide
Qantas with the flexibility to pursue increased foreign investment
without the politically-charged risk of foreign owners acquiring
more control over decision-making in the airline.
THE WAY FORWARD
Any ability by ASX-listed companies to issue non-voting ordinary
shares would not be without its detractors.
Historically, concerns have been raised regarding management
accountability and market confusion. However, these concerns can be
managed by appropriate safeguards, such as disclosure requirements,
shareholder approval and sunset clauses.
Whilst some studies suggest that multi-class ownership
structures can result in underperformance over an extended period,
increased price volatility and reduced corporate governance
controls, the literature is not determinative. Indeed, there are
multiple-class listed companies (such as Berkshire Hathaway) which
have consistently outperformed their single-class counterparts.
Some of ASX's principal competitors, including NYSE, LSE and
TSX, permit the issue of non-voting ordinary shares, which affords
companies listed on those exchanges a more flexible framework for
raising capital. Recently SGX has been re-examining its prohibition
on multiple share classes, with HKSE potentially following suit in
light of its failure to secure the Alibaba Group listing.
ASX briefly flirted with allowing the issue of non-voting
ordinary shares in 2007, but shelved that proposal following a
mixed response from stakeholders.
The time is ripe for ASX to follow the lead of its competitors
or risk becoming a dinosaur securities exchange.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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